We describe an invertible nonlinear image transformation that is well-matched to the statistical properties of photographic images, as well as the perceptual sensitivity of the human visual system. Images are first decomposed using a multi-scale oriented linear transformation. In this domain, we develop a Markov random field model based on the dependencies within local clusters of transform coefficients associated with basis functions at nearby positions, orientations and scales. In this model, division of each coefficient by a particular linear combination of the amplitudes of others in the cluster produces a new nonlinear representation with marginally Gaussian statistics. We develop a reliable and efficient iterative procedure for inverting the divisive transformation. Finally, we probe the statistical and perceptual advantages of this image representation, examining robustness to added noise, rate-distortion behavior, and artifact-free local contrast enhancement.